Every now and then, groups of economists develop new ways of understanding the world that are sufficiently distinct that they need a label. For example, there is a "new institutional economics" and a "new economic geography", both of which offered valuable new insights into how the world works and how economic policy, including regulatory policy, should react to the problems that the world throws up. These new paradigms are now widely accepted, because they added to our understanding of how the world works, to the point where the "new" part looks like the historical relic that it is. only emerged.
Mike's piece is suggesting that there is now a sufficiently distinct body of liberal economic thought that we should call it the "new liberal economics". He identifies and provides evidence for three claims in particular:
- Inequality is a choice. It is not a regrettable but inevitable byproduct of an efficient economy, nor a temporary, self-correcting trend. Different policy choices can reduce inequality, and need not compromise growth (pdf).
- There are structural barriers to full employment, including a global savings glut and a reluctance by private firms to invest, and these are not self-correcting.
- Direct government supply is a useful option. There is only so much that can be done by "nudging" the private market.
Down here in NZ, our mainstream does not yet accept any of these points, though we are dabbling around the edges of this new liberal economics.
Obviously, we don't accept the fact that inequality is a choice (give us another five years I reckon). We are somewhat into job-creating infrastructure spending, but ours is often low quality spending(pdf) and at the end of the day we're mainly about government budget surpluses. And we are of course still madly in love with nudging the private market rather than making sure the public option works well.
I hope we start facing some of these facts sooner rather than later.